As we approach Christmas, this is a good time to reflect on Cromwell's recent progress and what we have been able to achieve for our investors during the year.

We are here for one reason and that is to give our investors, the people who support us, the best possible returns we can.

We recognise that our investors need a stable income and so, that is what we strive to do.. But we strive to do it in a way that is a bit smarter than the typical yield focused property group. We don't simply buy assets and sit on them. We buy properties and actively manager them to maintain a stable, long-term income stream that is protected as far as possible against market cycles or property obsolescence.

Our strategy this year has continued to be to acquire the right assets, actively manage our existing portfolio, sell assets that will not maximise our risk adjusted returns, and diligently manage our other risks.

The last 12 months have seen significant developments in our industry. Residential property is booming again. This is good news for home owners but we are also seeing behaviours emerging that are erratic. People are buying in the expectation that prices will go up forever and they are seemingly ignoring risk.

On the commercial side where we operate, investors continue to favour industrial property and to drive yields down. The market is pessimistic about office sector tenancy while the retail sector continues to be challenged by weak consumer confidence. And yet, there is money pouring into property, especially from international investors. 

I believe there are two big drivers in the world economy right now. One is the fact that central banks are virtually giving away money by keeping interest rates at record lows. This is encouraging some institutions to invest irresponsibly, driving up asset prices.

The other driver is that, at the same time, people are worried that central banks might stop giving away free money. This means that whenever there's an impact globally, whether it's an oil crisis or concerns in relation to growth or interest rates, there is a lot of volatility. 

We believe that because of these effects, risk is currently mispriced on the downside and a whole lot of things could happen that might cause difficulties. What we've done this year is to mitigate those risks for our investors. 

We have extended our debt duration, capped interest rates, and tried to protect ourselves by increasing our exposure to long-term cash flows. We have also taken cash from capital upside where we can, paid debt down, and continue to hold cash for opportunities that might arise.

Overall, Cromwell is in a good position and the portfolio remains strong. We have been able during the year to complete the Qantas Headquarters redevelopment to great success, we established our first wholesale vehicle - for the Northpoint Tower in North Sydney - and we realised our investment in redeveloping 321 Exhibition Street in Melbourne and received strong returns. 

On the leasing front, successes at 100 Waymouth Street in Adelaide, 700 Collins Street in Melbourne, HQ North Tower in Brisbane and 475 Victoria Avenue in Chatswood have demonstrated our ability to do deals in difficult markets.

We have also seen progress on the sustainability front with improvements at 700 Collins Street where we had a remarkable increase in energy efficiency; with our work on the Qantas Headquarters and efficiency improvements across the NSW Government portfolio, and also in our head office refurbishment.

Our fund management business has continued to thrive and roll out new products including the Cromwell Direct Property Fund and the Cromwell Australian Property Fund. Excluding our investment in New Zealand fund manager Oyster Group, we now have about $1.3 billion in funds under management and long term ambitions to grow funds management's contribution to earnings to 20 per cent.

Our strength as a business is that we have a clear objective - to provide our investors with a reliable and growing income - and that purpose underpins all of our business decisions. I hope that in some small way we have contributed to you and your family's financial security in 2014. I would like to take this opportunity to thank you for your support throughout the year and wish you a relaxing holiday and a prosperous new year.

Warm Regards,

Paul Weightman
Managing Director / CEO  

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